Securities Authority forces out major El Al shareholder

Israel Borovich resigns after revelations that former CEO Haim Romano received huge bonuses even when national carrier was posting net losses.

By KOBY YESHAYAHOU / GLOBES
Haim Romano 311 (photo credit: Courtesy)
Haim Romano 311
(photo credit: Courtesy)
El Al Israel Airlines Ltd. controlling shareholder Israel Borovich has resigned from the company’s board of directors Thursday following a severe rebuke by the Israel Securities Authority over the exorbitant bonuses granted to former CEO Haim Romano.
Romano took up his post in February 2005. His bonus mechanism was based on the airline's net profit. However, a month later, Romano's mechanism was changed to base the bonus on the earnings before interest, taxes, depreciation and amortization (EBITDA), without the board's approval.
The revised mechanism resulted in Romano receiving bonuses even in years when El Al posted net losses.
The Securities Authority investigation found that, as a result of the EBITDA-based mechanism, Romano received $4.7 million more in bonuses than he should have - $5.5 million instead of $800,000 in 2005-09.
The Securities Authority findings are summarized in a report which details its demands of El Al, Romano, and Borovich. El Al will be fined NIS 1.5 million.
After reviewing the report, El Al decided that Romano and the directors' insurance company should repay the airline $1 million, so that most of the excess bonus was approved retroactively.
In its report, the Securities Authority said that changing the bonus mechanism for Romano from being based on the airline's net profit to its EBITDA was “never discussed or legally approved by the company.”
Borovich immediately submitted his resignation from El Al's board.
“The company will adopt an internal enforcement plan” for reviewing changes in bonus mechanism, El Al said in a statement, adding that it has appointed Prof. Assaf Hamdani and Adv. Moran Meiri to prepare a proposal for this plan.
El Al's share price fell 2.2% by mid-afternoon Thursday to NIS 1.27, giving a market cap of NIS 648 million.